Bloomberg News

Vale Shares Fall After Profit Decline on Nickel Price

April 25, 2008

Cia. Vale do Rio Doce, the world's biggest iron-ore producer, fell after lower nickel prices and a loss in metals trading led to a drop in first-quarter profit, surprising some analysts.

Net income fell to $2.02 billion, or 42 cents a share, from $2.22 billion, or 46 cents, a year earlier, Rio de Janeiro-based Vale said last night. The results included a $318 million loss from trading metal futures and a 29 percent drop in the average price of nickel, Vale's second-largest source of revenue after iron ore. Sales rose 4.6 percent to $7.83 billion.

Rogerio Zarpao, an analyst for Unibanco SA, had forecast a 19 percent increase in net income to $2.64 billion, with net revenue up 7 percent to $8.02 billion. Roger Downey, a research analyst for Credit Suisse Group, said in an e-mailed report before the release that earnings per share would be 46 cents.

``Operating performance came in a little short of our estimates,'' Felipe Reis and Victoria Santaella, analysts at Santander Investments, wrote in an e-mailed report today. ``If the stock reacts negatively in today's trading session, we would view that as a buy opportunity.''

Vale's American depositary receipts (RIO:US) fell 24 cents, or 0.6 percent, to $37.09 at 12:27 p.m. in New York.

In Sao Paulo trading, Vale declined 62 centavos, or 1.2 percent, to 50.59 reais. Before today, the stock has gained 42 percent in the past year, compared with a 30 percent gain for the benchmark Bovespa index.

Hedging Losses

Vale doesn't expect a repeat of losses from trading of nickel and copper in the second quarter, Roberto Castello Branco, investor relations director, said today in a conference call.

``Vale only hedges in special situations, for instance to finance the Inco purchase and protect cash flow,'' Castello Branco said. ``The positions taken, in any case, are very small.''

The shares may rebound and second-quarter profit will get a boost after the company negotiated a 66 percent increase of the contract price for its iron ore, which took effect April 1, said Daniel Gorayeb, a metals and mining analyst for Sao Paulo-based broker Spinelli SA.

``The lower results are mainly due to short-term, non- recurring factors such as financial costs and hedging losses,'', Gorayeb said in a phone interview today. ``The shares are not highly valued at the moment, and we see this as an excellent opportunity to buy Vale stock.''

To contact the reporters on this story: Jessica Brice in Sao Paulo at jbrice1@bloomberg.net; Diana Kinch in Rio de Janeiro at dkinch1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.


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